FBC sees cautious recovery in Zimbabwe

Financial services firm FBC Securities says Zimbabwe's 2025 Mid-Year Budget and Economic Review points to a cautiously optimistic recovery trajectory, although tight fiscal and monetary conditions could slow domestic demand and private sector activity.

The review, presented last week by Finance, Economic Development and Investment Promotion Minister Prof. Mthuli Ncube, comes amid growing company closures and an expanding informal sector. Despite persistent macroeconomic challenges, Ncube maintained a 6% GDP growth projection for 2025, while revising last year's GDP growth downwards to 1,7% from 2%.

The economy is expected to contract by about one percentage point in 2026, reinforcing a mixed medium-term outlook.

FBC Securities said the projected growth this year will largely be driven by a 21,5% rebound in agriculture, 5,3% expansion in mining, and modest gains in manufacturing and services.

"Based on the 2025 Mid-Year Budget and Economic Review, Zimbabwe's economic outlook reflects a cautiously optimistic recovery trajectory, albeit under tight fiscal and monetary conditions," the firm said in its post-review analysis.

It warned, however, that contractionary fiscal and monetary policies—intended to stabilise the local currency and curb inflation—have created tight liquidity conditions across the banking and real sectors. This, FBC Securities noted, could constrain activity in trade, construction, and small enterprises, slowing the pace of domestic demand recovery.

Despite this, the external sector has shown resilience. Foreign currency receipts rose 24% in early 2025, driven by higher export earnings, steady diaspora remittances, and increased private loan inflows.

The fiscal position also shows signs of prudence, with a mid-year surplus of ZiG3,3 billion. However, public debt remains high at US$21,5 billion, limiting fiscal space and posing medium-term risks.

"Overall, the economy is expected to grow on the back of export-led recovery, agriculture rebound and infrastructure spending, although growth momentum will remain vulnerable to liquidity constraints, external shocks and slow domestic demand," the firm said.

FBC Securities projects that tight liquidity will help stabilise the Zimbabwe Gold (ZiG) currency in the short term by reducing speculative demand for foreign exchange. The official exchange rate is likely to remain steady, supported by export receipts, remittances, and loan inflows.

However, the brokerage cautioned that persistent supply constraints, high import dependency, or fiscal slippages could trigger renewed currency pressures and inflationary spikes.

While the informal sector continues to absorb economic shocks, its expansion—now accounting for 76,1% of the economy, up 16,1 percentage points—poses long-term structural challenges for revenue mobilisation and industrialisation.

"If the current contractionary stance is maintained, the country could experience short-term exchange rate stability and moderated inflation, albeit at the cost of constrained domestic demand and slower private sector activity," the firm said.